Samuel R.W. Price: Court decisions regarding medical expenses

It's the Law

On June 24, the First District Court of Appeal announced its decision in Yanez v. SOMA Environmental Engineering, Inc., and in so doing continued a recent streak of victories for personal-injury plaintiffs in the battle over the proper measure of damages to be awarded for medical expenses.

At issue was the legal doctrine known as the "collateral-source rule." In the context of a personal-injury case, a successful plaintiff will receive, at the very least, an award of compensatory damages - that is, the amount necessary to reimburse the victim for the actual financial loss suffered.

The collateral-source rule provides that the amount of compensatory damages that a plaintiff receives from a defendant should not be reduced just because the plaintiff also received compensatory benefits from an independent - or collateral - source.

Ana Yanez was injured in an automobile accident. During the trial on her claims, Yanez submitted into evidence medical bills totaling $44,519.01. The jury was instructed to award Yanez damages in an amount that would compensate her for "the reasonable cost of reasonably necessary medical care that she has received" and returned an award of $150,000, including the full amount of the medical bills.

However, although the total of the bills Yanez presented exceeded $44,000, the amount that was actually paid for Yanez's medical treatment was significantly lower: $18,368.24. Pursuant to the standard contractual arrangements between her doctors and insurers, a substantial amount of Yanez's medical bills had been written off and dramatically reduced sums were accepted by the providers as payment in full. Consequently, the defendant moved to have the award reduced to the actual amount expended. The trial court granted the motion and reduced the award for compensatory damages to the amount necessary to reimburse Yanez for the financial expenses actually incurred. Yanez appealed.

The primary issue in the appeal was whether the portion of Yanez's medical bills that had been written off as a result of her insurance coverage constituted a collateral-source benefit. If so, Yanez would be entitled to recover the full amount billed for her medical treatments. If not, she could only recover the significantly discounted amount actually paid by Yanez and her insurers.

The positions advanced by the adverse parties - and fervently championed by their respective supporters - are both compelling. From a plaintiff's perspective, the very purpose of the collateral-source rule would suggest that recovery of the full value of medical expenses is appropriate. In California, insurance is considered a form of investment. If a wrongdoer is permitted to reduce his or her liability because the victim was insured, the insured victim would be worse off than an uninsured victim, because the insured's investment, in the form of policy premium payments, would have earned the insured no benefit.

On the contrary, by reducing the wrongdoer's liability, it would be the wrongdoer who would reap the benefits of the insured victim's investment. Admittedly, in many cases like Yanez, this will result in a windfall for the plaintiff. However, public policy suggests that, as between a wrongdoer and a victim, the law must always favor the latter.

On the other hand, a civil defendant must rightfully wonder how phantom "charges" for medical services - charges which never have been paid and never will be paid - can constitute a loss for which a plaintiff is entitled to recovery. A fundamental precept of California law is that, in receiving an award of compensatory damages, a plaintiff is not to be placed in a better position than he or she would have been otherwise.

Allowing a plaintiff to recover amounts that were never paid simultaneously results in overcompensation of the plaintiff and excessive penalization of the defendant for a nonexistent loss. It is nothing less than a windfall for personal-injury litigants and their attorneys.

Furthermore, awarding such excess damages to a plaintiff will invariably encourage litigation, result in higher insurance premiums and increase the costs of doing business in California.

These were some of the very arguments recently set forth in briefs to the California Supreme Court in Howell v. Hamilton Meats & Provisions, Inc., 179 Cal.App.4th 686 (review granted March 10, 2010, No. S179115), a case which mirrors the issues in Yanez. Until the recent decision in Howell, case law in California suggested that compensatory damages should be limited to the amount actually expended. But the appellate court in Howell found that the collateral-source rule entitled injury victims to a recovery of the full reasonable value of reasonable medical services received. The Yanez court followed suit, but not before the Supreme Court unanimously agreed to review Howell, possibly paving the way for a concurrent review of Yanez and a comprehensive opinion addressing the issues raised in both cases.

Although plaintiffs' attorneys have enjoyed a recent string of successes in this battle of compensatory damages, both sides know that until the Supreme Court resolves the issue, it is too early to celebrate victory.

Samuel R. W. Price is an associate with the law firm of Poole & Shaffery, LLP. He can be reached at sprice@pooleshaffery.com. His column reflects his own views and not necessarily those of The Signal. "It's The Law" appears Fridays and rotates between members of the Santa Clarita Valley Bar Association. www.SCVbar.org. Nothing contained herein shall be or is intended to be construed as providing legal advice.